Investment avenues for NRI's in listed NCD's

As an NRI you are allowed to invest in the following ways: The Indian Government encourages any kind of investment by its citizen & on top of it if it's an NRI investment then there is nothing like it. This is because the central exchequer will make some additional fiscal benefits on exchanging the foreign currency into the Indian Rupee. Thus, it is not tedious for an NRI to invest in property and real-estate in India as it is appreciated by the government itself.

What are the other facilities available to NRIs/PIO? A. Investment facilities for NRIs NRI may, without limit, purchase on repatriation basis: Government dated securities / Treasury bills Units of domestic mutual funds; Bonds issued by a public sector undertaking (PSU) in India. Non-convertible debentures of a company incorporated in India. Perpetual debt instruments and debt capital instruments issued by banks in India. Shares in Public Sector Enterprises being dis-invested by the Government of India, provided the purchase is in accordance with the terms and conditions stipulated in the notice inviting bids. Shares and convertible debentures of Indian companies under the FDI scheme (including automatic route & FIPB), subject to the terms and conditions specified in Schedule 1 to the FEMA Notification No. 20/2000- RB dated May 3, 2000, as amended from time to time. Shares and convertible debentures of Indian companies through stock exchange under Portfolio Investment Scheme, subject to the terms and conditions specified in Schedule 3 to the FEMA Notification No. 20/2000- RB dated May 3, 2000, as amended from time to time. NRI may, without limit, purchase on non-repatriation basis : Government dated securities / Treasury bills Units of domestic mutual funds Units of Money Market Mutual Funds National Plan/Savings Certificates Non-convertible debentures of a company incorporated in India

 Shares and convertible debentures of Indian companies through stock exchange under Portfolio Investment Scheme, subject to the terms and conditions specified in Schedules 3 and 4 to the FEMA Notification No. 20/2000- RB dated May 3, 2000, as amended from time to time. Exchange traded derivative contracts approved by the SEBI, from time to time, out of INR funds held in India on non-repatriable basis, subject to the limits prescribed by the SEBI. Note : NRIs are not permitted to invest in small savings or Public Provident Fund (PPF).
CONCLUSION : NRIs cant buy NCDs from the secondary market if the issuing company doesnt allow NRIs to invest in them. NRIs can invest in NCDs but on a non-repatriation basis. Investment by NRIs in NCDs of companies (which had not issued NCDs to NRIs in the public offer) through secondary market route might amount to the contravention of the Foreign Exchange Management (Borrowing and lending in rupees) Regulations, 2000.

NRIs subscribing to the NCDs are subject to risks in connection with (i) exchange control regulations, and, (ii) fluctuations in foreign exchange rates. The NCDs will be denominated in Indian rupees. Various statutory and regulatory requirements and restrictions apply in connection with the NCDs held by NRIs, (Exchange Control Regulations). Amounts payable to NRIs holding the NCDs, on redemption of the NCDs and/or the interest paid/payable in connection with such NCDs would accordingly be subject to prevailing Exchange Control Regulations. Any change in the Exchange Control Regulations may adversely affect the ability of such NRIs to convert such amounts into other currencies, in a timely manner or at all. Further, fluctuations in the exchange rates between the Indian rupee and other currencies could adversely affect the amounts realized by NRIs on redemption or payment of interest on the NCDs by our Company.

Key Features and Benefits of NCD Issuance and trading: NCDs are issued and traded in demat form. Returns: NCDs are ideal for conservative investors who seek higher returns but are risk averse. Returns are generally in the range of 11 to 12%, depending upon the company. Safety: NCDs are relatively safer than company FDs. They possess low to moderate amounts of risk depending upon the company. NCDs could be secured or unsecured. Secured NCDs are secured against the assets of the company. In other words, in case of a default, these investors will be paid back first, by selling some of the assets of the company. In case of unsecured NCDs, there is no security for repayment of principal or interest. Liquidity: Investors could liquidate NCDs by either selling it on the stock exchange or by exercising the Call or Put Option.

Tax Implication: There is no Tax Deducted at Source (TDS) on NCD investments. However for NRI investors, there is a TDS deduction. The interest income of an NCD is taxed at normal rates and is included under Income from other sources. They are also subject to capital gains tax when sold at the stock exchange. Companies issuing NCDs : First NCD issue was by TATA CAPITAL (TCL) in Feb 2009 and the second was by Shriram Transport in July 2009.The Others are Religare Finvest ltd , L & T Finance company,Muthoot Finance ltd ( only apply
under Category IV, for Option II, Option III and Option IV) etc..

ECB for Affordable Housing

The Finance Minister has understood the criticality of ECB and has rightly allowed ECB financing to play a larger role in sectors like roads, power, railways, housing, mining, etc. Not to be left behind, the ailing housing sector has also found itself mentioned in the gamut of ECBraising schemes. Mukherjee has allowed ECB for low-cost affordable housing projects. However, it is unclear what is the upper cap and guidelines for declaring the projects under this segment. In Indian real estate space, the word affordable housing is a relative concept and there are no specific guidelines provided by the government for the same. ECB was not permitted for the real estate sector as RE does not have an industry status. With this permission, it will be possible for developers to raise money at 2-3.5 per cent borrowing cost, as compared to 12-13 per cent charged by the Indian banks, and the government expects the benefits will be passed on to the buyers. But realty consultants point out that all developers would not be able to take advantage of the ministers offering. There is always a foreign exchange risk and the repayment value could be high due to rate fluctuations. Also, people who borrow via ECB, always take cover for six months and there is a cost involved for doing that; so a part of the 10 per cent interest cost advantage could easily be wiped out with all these factors. To add to it, not all developers involved in the business of developing low-cost, affordable housing, have strong balance sheets to show to lenders. Thus this step will spur consumption and growth. A stable currency will ensure positive growth in the economy .There is a lot for the consumer to look forward to in the coming financial year as realtors and developers get more proactive. The affordable housing segment has received many boosts. Urban areas and metros will see more affordable housing projects and more buyers will emerge from the middle class. You will see an upward trend in the budget housing market. The housing sector will also look for inroads into Tier II and III cities and rural housing will get a boost. Though the TDS of one percent on property transactions has been introduced in the Budget, some have been spared as this applies only on transactions above Rs 50 lakhs. There is a strong buzz that the Reserve Bank of India (RBI) is considering a decrease in the repo rate in the second quarter of the financial year 2012-13. The announcement on external commercial borrowings (ECB) for affordable housing with a reduction in withholding tax on ECB interest will reduce the burden on developers by bringing down the cost of raising funds. The Credit Guarantee Trust Fund will also encourage investments in affordable housing All this adds up to good news for prospective homebuyers in the affordable housing segment. The construction industry is witnessing a slump due to the high finance costs. Inflation and high interest rates have affected the real estate industry. The government regulations are becoming strict. If the GST becomes a reality it will become more rigid for the industry.

Registering property costing more than Rs 20 lakhs needs PAN. All this is effective in cleansing the system. In the new financial year, the industry will recover if the home loan interest rates go down. There are strong indications of this happening, as major banks are considering this move. Though large scale external commercial borrowing in happening in the housing sector, the demand is not very strong. If the interest rates come down and the IT sector does well, the realty segment will bounce back.